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Endogenous Distortions in Product and Labour Markets

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  • Rama, Martin
  • Tabellini, Guido

Abstract

This paper uses the common agency approach to analyse the joint determination of product and labour market distortions in a small (developing) open economy. Capital owners and union members lobby the government on both tariffs and minimum wages, while other factors of production are not organized. The paper shows that product and labour market distortions move in the same direction in response to changes in economic and political parameters, and that their level is not modified by social pacts between capital and labour. It also shows that conditionality by foreign agencies should target product market distortions, not labour market distortions.

Suggested Citation

  • Rama, Martin & Tabellini, Guido, 1995. "Endogenous Distortions in Product and Labour Markets," CEPR Discussion Papers 1143, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1143
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    References listed on IDEAS

    as
    1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    2. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-942, July.
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    Cited by:

    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Douglas Marcouiller, 1995. "Putting in politics: A review of economic models with endogenous determination of policy," Forum for Social Economics, Springer;The Association for Social Economics, vol. 25(1), pages 37-51, September.
    3. Rama, Martin & Tabellim, Guido, 1998. "Lobbying by capital and labor over trade and labor market policies," European Economic Review, Elsevier, vol. 42(7), pages 1295-1316, July.
    4. Gil S. Epstein & Shmuel Nitzan, 2003. "Political culture and monopoly price determination," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 21(1), pages 1-19, August.

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    More about this item

    Keywords

    Lobbying; Minimum Wage; Social Pact;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • J00 - Labor and Demographic Economics - - General - - - General

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